Property rental yield calculator

Example: a 120,000 EUR flat let for 650 EUR a month

The flat costs 120,000 EUR, the rent is 650 EUR a month and the costs borne by the owner are 80 EUR a month. Annual rent is 650 × 12 = 7,800 EUR and annual costs 80 × 12 = 960 EUR.

Gross yield is 7,800 ÷ 120,000 = 0.065, or 6.50%. For net yield the costs are subtracted before dividing: (7,800 − 960) ÷ 120,000 = 6,840 ÷ 120,000 = 5.70%. Costs of just 80 EUR a month take 0.8 percentage points off the yield.

Net yield can also be read the other way round: at 5.70% it takes 120,000 ÷ 6,840 = about 17.5 years for the rent to earn back the purchase price, assuming rent and costs stay the same and the flat is always let.

The large figure in the calculator is net yield; gross yield is shown beneath it. If you compare the result with a yield from elsewhere, such as a sales listing or an offer, first check whether that figure is gross or net and which costs it includes. Otherwise you are comparing different things.

Three flats, three different pictures

Gross yield makes flats look further apart than they really are. In the list below the gap between the first and third flat is 1.71 percentage points on gross yield but only 0.50 on net yield. The figures were run through the calculator.

• A 70,000 EUR flat, rent 450 EUR, costs 110 EUR: gross yield 7.71%, net yield 5.83%. Costs take almost a quarter of the rent.
• A 95,000 EUR flat, rent 550 EUR, costs 120 EUR: gross yield 6.95%, net yield 5.43%.
• A 160,000 EUR flat, rent 800 EUR, costs 90 EUR: gross yield 6.00%, net yield 5.33%.
• The same 160,000 EUR flat with costs of 160 EUR: net yield drops to 4.80%. Doubling the costs eats more than half a percentage point.

What to put in the costs field

The costs field is the least reliable input for net yield, because it is easy to underestimate. Enter everything the owner pays, converted to a monthly figure, even if it is billed once a year.

• Apartment association or management charges that the tenant does not pay, including the repair fund contribution.
• Insurance: divide the annual premium by 12.
• A repair reserve: the washing machine, the cooker or the floors will need replacing sooner or later. If you set aside, say, 1,200 EUR per three years, that is 33.33 EUR a month.
• Taxes and charges payable on the rental income or the property. The calculator does not work these out itself.
• Fees for an agent or management company if you outsource finding tenants or running the flat.

Empty months and renovation in the purchase price

The calculator assumes the flat is let for all 12 months. If you allow for one empty month a year, enter the rent as 650 × 11 ÷ 12 = 595.83 EUR. The example's yields then drop to 5.96% (gross) and 5.16% (net). One empty month costs roughly half a percentage point.

As the price, enter everything it takes to get the flat ready to let, not just the purchase price. If a 120,000 EUR flat needs 8,000 EUR of renovation before letting, the price is 128,000 EUR. The yields are then 6.09% (gross) and 5.34% (net). Transaction costs belong in the price in the same way.

What rental yield does not show

Yield is calculated on the full price, not on your own equity. If you buy with a mortgage, the return on your own money is a different number altogether: loan interest reduces the cash flow, while a smaller down payment raises the percentage relative to what you put in. To see the effect of the loan, add the interest part of the payment to the costs and work out the payment itself with the home loan calculator.

The calculation leaves out changes in property value, rent increases or cuts, and the costs of selling. The total return can therefore be well above or below the rental yield. The result is suited to comparing flats against one consistent yardstick, not to forecasting how the investment will turn out.